A modern person can hardly be surprised by the presence of several hundred varieties of cheese and lemonade, a huge number of brands of clothing and equipment. On the contrary, he is often confused by the existence of only one manufacturer in the industry. Monopolization of markets is a situation when the supplier of a certain type of goods or services is only one enterprise or person. In this case, the consumer has no choice, he is forced to agree to the set price. Monopolization of markets is also a process in which a company gets the opportunity to raise prices and eliminate its competitors. And such enterprises are not necessarily large, it all depends on the size of the industry in which they operate.
The concept
Economists distinguish four types of ideal market structures:
- Perfect competition. In this situation, there is a huge amount of substitute goods, and entry into the market is practically unlimited. Everything is decided by the "invisible hand."
- Monopolistic competition. There are many manufacturers operating in the industry that produce substitute goods. However, companies retain some control over pricing. This is determined by the levels of market monopolization.
- Oligopoly. In this situation, there are several enterprises that produce similar products. They can work out a common strategy by setting prices in the industry.
- Monopoly. This market structure provides for only one supplier of products that has full control over the industry.
Monopoly Characteristics
The generally accepted opinion is that perfect competition is practically a panacea, a compromise between the desires of the seller and the consumer. Most economic models take this structure as a basis. However, why in this case is the monopolization of markets? This is due to the fact that this state of affairs is extremely beneficial to the manufacturer. First, monopoly allows you to maximize profits. Secondly, the manufacturer sets the price for his products through determining the volume of output. Thirdly, in a monopoly there are great barriers to entry into the industry. A single manufacturer may not be afraid of a rapid increase in competition.
Forms
When the monopolization of the market occurs, competition in the resulting structure is a fundamental sign for determining its type. In total, there are three forms of monopoly:
- Natural. It arises due to objective reasons. This means that the demand for this product is best met by one firm. The reason may be features of the production process or customer service. For example, such sectors include energy supply, water supply, and rail transportation.
- Administrative This form of monopoly is created with the participation of the state. It, through its bodies, grants a certain company the exclusive right to carry out activities in the industry. The economy of the USSR was extremely monopolized. Most enterprises were controlled by departments and ministries.
- Economic monopoly is the most common form. Its appearance is associated with its own initiative of enterprises. Monopolistic position in the market can result in both progressive development and rapid centralization of capital through acquisitions and voluntary associations.
Market monopolization conditions
The structures under consideration can either be created through a series of acquisitions by some companies of others, or they can be formed naturally in certain industries. The state can also create them. Monopolization of markets is a process in the center of which are three main reasons:
- The production of goods by one company is cheaper than several. In this case, we can talk about natural monopoly.
- One enterprise owns extremely rare resources or technologies. For example, Xerox at one time completely controlled the process of making copies. Knowledge of this process was protected by patents. This is an economic monopoly.
- The provision by the state of a certain enterprise the exclusive right to sell a certain good. In this case, the so-called administrative monopoly arises. In some states, legislation allows only this form.
Monopoly Power Sources
In conditions of perfect competition, the price is equal to the average value of the marginal cost of firms operating in this industry. The monopoly is higher. Therefore, this market structure seems to be undesirable for consumers. The main assistant to the monopolies are barriers to entry into the industry. They prevent the occurrence of competition. Among them:
- Economic barriers.
- Legislative restrictions.
- Intentional actions.
The first group includes the largest number of restrictive measures. This includes economies of scale. The size of monopolies allows them to significantly reduce costs, ordinary firms simply can not compete with them in the price of products. Therefore, their activities cannot be effective, since the cost of their goods is much higher.
Another economic constraint is investment requirements. If expensive equipment is needed to start production, this will also hinder the emergence of competitors. A monopoly may have a technological advantage or be the owner of the natural resources necessary for the release of goods.
With regard to legislative restrictions, this group includes intellectual property rights, including patents. They give the monopoly the exclusive right to produce a product or technology for its release.
The third group of restrictions includes a variety of deliberate actions taken by the monopoly to prevent the development of competition in the industry. For example, she can lobby her interests in the government through various corrupt practices.
Natural monopoly
This form of the described market structure is often considered separately. This is due to the debate about its usefulness not only for the monopolist, but also for consumers. It occurs when there is a large value of the effect of economies of scale. A natural monopoly is a situation where a single firm provides the market with products with lower costs than several enterprises would do. A striking example is water and electricity. However, this does not mean that natural monopolies are completely harmless. Therefore, they must be controlled by the state.
In international business
The global economy is increasingly affected by globalization and internationalization. These two processes are responsible for the monopolization of the market of services and services at the international level. There are two types of such structures:
- Transnational monopolies. These include, for example, the Nestle food concern or the Standard Oil of New Jersey oil concern. Both of these companies are national in terms of the capital invested in them, and international in their field of activity. Most of their production capacity is not located in the home country.
- International monopolies. The Agfa-Gefert trust, which is engaged in the production of photochemical products, can be attributed to this type. This type of monopoly is international both in its field of activity and in invested share capital.
Domestic realities
Monopolization of the Russian market has historical roots. In the USSR, the state almost completely controlled the economy. With a decrease in production in Russia, the demand for the products of industries - natural monopolies, except for communications, is gradually decreasing. This led to a rapid increase in prices in them. Given that these industries are fundamental, this triggered inflation. Some economists see the negative effects of market monopolization as a major factor in crises in Russia.